Table of Contents
If you’re looking for a flexible and advantageous way to finance your business assets, you may want to consider a Chattel Mortgage. This financing option is particularly beneficial for customers of AutoNowCredit, a leading car finance company. In this guide, we’ll delve into the details of Chattel Mortgages and how they work, focusing on their numerous advantages for businesses, especially those in need of financing for vehicles and equipment.
What is a Chattel Mortgage?
A Chattel Mortgage is a type of secured business finance commonly used to acquire vehicles and other essential equipment. At its core, it involves registering the asset being purchased, often referred to as the 'chattel,' as security for the loan. This registration allows the lender to reclaim the asset if the borrower fails to meet their loan repayment obligations. However, the unique aspect of a Chattel Mortgage is that the business has full ownership of the asset right from the beginning.
How do Chattel Mortgages work?
Chattel Mortgages are essentially fixed-term finance contracts with a fixed interest rate. They bear similarities to secured car loans, but they are tailored specifically for business customers. Here's a breakdown of how Chattel Mortgages work for AutoNowCredit customers:
You or your business takes ownership and responsibility for the asset upon purchase.
Regular repayments are made to the lender over a predetermined period.
The lender registers a mortgage over the asset, akin to securing a home loan with a property.
In Summary...
When opting for a Chattel Mortgage through AutoNowCredit, you gain access to a range of benefits and features that can support your business financing needs:
Borrowing options from $5,000 to $1 million.
Loan terms spanning from two to five years, offering flexibility.
A straightforward application and approval process.
Interest rates tailored to suit your business's financial situation.
Enjoy lower interest rates compared to unsecured business loans.
The opportunity to claim tax credits, further enhancing your financial position.
In Summary...
When opting for a Chattel Mortgage through AutoNowCredit, you gain access to a range of benefits and features that can support your business financing needs:
Borrowing options from $5,000 to $1 million.
Loan terms spanning from two to five years, offering flexibility.
A straightforward application and approval process.
Interest rates tailored to suit your business's financial situation.
Enjoy lower interest rates compared to unsecured business loans.
The opportunity to claim tax credits, further enhancing your financial position.
Chattel Mortgage vs business loans Benefits
Chattel Mortgages in Australia present several advantages over various other forms of business finance. They are particularly well-suited for businesses seeking to purchase company vehicles or machinery. Here are some of the primary benefits to consider:
Suitable for financing a vehicle used for business purposes at least 51% of the time.
Offers GST, depreciation, and tax-deduction benefits related to the financed vehicle.
Uses the financed vehicle itself as security, eliminating the need to put other assets at risk.
Grants the business immediate ownership of the vehicle.
Provides the option to include a balloon payment to reduce monthly repayment costs.
Flexible loan durations, typically set between 2 and 5 years.
Generally, lower interest rates and fees compared to other vehicle financing options.
Some loans may allow you to repay the Chattel Mortgage early if you have the capacity for extra repayments.
Who is Eligible for a Chattel Mortgage?
Eligibility for a Chattel Mortgage is typically extended to:
Business owners with an Australian Business Number (ABN), often referred to as an ABN Loan.
GST-registered businesses.
Australian citizens and permanent residents.
Applicants who can provide essential documentation, such as bank statements, to demonstrate eligibility.
Applicants meeting the lender's minimum credit score requirements.
Businesses with at least six months of operational history; a longer operational history tends to strengthen your application's appeal to lenders.
What Assets can I Finance with a Chattel Mortgage?
Chattel Mortgages are most commonly used to purchase business vehicles like company cars, utes, or trucks. These vehicles can have some personal use, but the primary purpose must be for business (i.e., more than 50% business use). Both new and used vehicles are eligible, as long as they are less than 12 years old, with lenders typically favoring newer assets.
Chattel Mortgages can also be applied to equipment financing, allowing you to finance various assets with registration numbers. This includes office equipment, machinery, or kitchen equipment. While specialist assets may be seen as riskier by lenders, they are still financeable with a Chattel Mortgage.
Chattel Mortgage Fees
Chattel Mortgages may come with application and ongoing fees, although not all lenders charge them. To make an informed decision, it's important to compare Chattel Mortgages based on both the interest rate and associated fees. Application fees can vary from $0 to several hundred dollars, depending on the lender, the specific loan, and the type of asset being purchased. Additionally, some lenders may impose fees for making extra repayments or repaying the Chattel Mortgage early, while others do not.
Most Common Vehicles Purchased with a Chattel Mortgage
Chattel Mortgages are commonly used to finance various types of vehicles and machinery, with some of the most frequently purchased assets including:
| Small vehicles: | Large vehicles: | Machinery: |
|---|---|---|
|
Cars |
Trucks and trailers |
Diggers |
|
Motorcycles |
Caravans |
Forklifts |
|
Work Vans |
Buses |
Mowers |
|
Work Utes |
|
Tractors |
|
Delivery Vans |
|
Excavators |
|
|
|
Mining Equipment |
Chattel Mortgage GST Credit
For businesses registered for GST, claiming a credit for the GST paid on the initial purchase price of a business vehicle or other asset financed with a Chattel Mortgage is a possibility. This credit can be claimed as an input tax credit on the first Business Activity Statement (BAS) following the establishment of the Chattel Mortgage.
Other Tax Benefits of a Chattel Mortgage
In addition to GST savings, Chattel Mortgages offer various other tax advantages when acquiring assets:
The vehicle becomes an asset on the business's balance sheet.
Depreciation on the vehicle can be claimed on your tax return.
All interest paid on the Chattel Mortgage is tax-deductible, making it a cost-effective financing option.
When it comes to the tax implications of using a Chattel Mortgage for financing your business assets, it's important to stay informed about the latest thresholds and limits. These details can significantly impact your tax deductions and overall financial outlook. As of 1 July 2023, the following car threshold amounts will apply for the 2023–24 financial year:
Income Tax:
The car limit for 2023–24 stands at $68,108. This limit serves as the maximum value used to calculate depreciation on the business use of a car that was first used or leased in the 2023–24 income year. Business owners can claim tax deductions for expenses related to specific motor vehicles used in the operation of their business. However, if a motor vehicle is used for both business and private purposes, it's crucial to correctly identify and justify the percentage claimed as business use. The percentage attributed to private use is not claimable.
Goods and Services Tax (GST):
In cases where a car's purchase price exceeds the car limit, the maximum GST credit claimable (with exceptions) is one-eleventh of the car limit, which equates to $6,191 in 2023–24.
It's important to note that a GST credit cannot be claimed for any luxury car tax paid when purchasing a luxury car, regardless of how extensively the car is used in the course of conducting business.
It's crucial to keep these thresholds and limits in mind when considering the tax implications of your Chattel Mortgage, as they can have a significant impact on your financial decisions and obligations. If you require assistance with your tax matters, a registered tax or BAS agent can provide valuable guidance and support.
When it comes to the tax implications of using a Chattel Mortgage for financing your business assets, it's important to stay informed about the latest thresholds and limits. These details can significantly impact your tax deductions and overall financial outlook. As of 1 July 2023, the following car threshold amounts will apply for the 2023–24 financial year:
Income Tax:
The car limit for 2023–24 stands at $68,108. This limit serves as the maximum value used to calculate depreciation on the business use of a car that was first used or leased in the 2023–24 income year. Business owners can claim tax deductions for expenses related to specific motor vehicles used in the operation of their business. However, if a motor vehicle is used for both business and private purposes, it's crucial to correctly identify and justify the percentage claimed as business use. The percentage attributed to private use is not claimable.
Goods and Services Tax (GST):
It's important to note that a GST credit cannot be claimed for any luxury car tax paid when purchasing a luxury car, regardless of how extensively the car is used in the course of conducting business.
It's crucial to keep these thresholds and limits in mind when considering the tax implications of your Chattel Mortgage, as they can have a significant impact on your financial decisions and obligations. If you require assistance with your tax matters, a registered tax or BAS agent can provide valuable guidance and support.
Self-Employed (Sole Trader) Chattel Mortgage
For sole traders, a Chattel Mortgage presents significant advantages that are often unavailable with other forms of car finance. Since the vehicle is predominantly used for business purposes, you may have the opportunity to claim a portion or all of the interest and depreciation costs as tax deductions. The main requirements for this benefit are having an ABN and GST registration.
Common Australian Trades Using Chattel Mortgages
Chattel Mortgages are commonly utilized by various trades in Australia, including:
- Arborists
- Builders
- Carpenters
- Caterers
- Cleaners
- Couriers
- Electricians
- Fencers
- Glaziers
- Handymen
- HVAC technicians
- Labourers
- Landscapers
- Locksmiths
- Mobile Mechanics
- Painters
- Plasterers
- Pool Servicing
- Removalists
- Tilers
Deposits and Trade-Ins for a Chattel Mortgage
While most Chattel Mortgages do not require a deposit (as lenders often finance 100% of the asset price), you typically have the option to make a deposit to lower your monthly repayments. If you have an existing vehicle that you plan to trade in, you can use the trade-in value to offset the cost of the new vehicle, further reducing your monthly repayments.
Chattel Mortgage Balloon Payments
Depending on the lender's terms, you may have the option to include a balloon or 'residual' amount as part of your Chattel Mortgage. This balloon payment is a lump-sum amount payable at the end of the loan term, resulting in reduced regular repayments during the loan duration. This feature can be attractive for businesses seeking to conserve cash flow at the start of the Chattel Mortgage. However, it's essential to be aware that including a balloon payment often means higher overall interest costs on the Chattel Mortgage.
Chattel Mortgage Balloon Payment Example
No Balloon
Loan amount: $50,000
Loan term: 5 years
Balloon amount: $0
Interest rate: 6%
Monthly repayments: $967.
With Balloon
Loan amount: $50,000
Loan term: 5 years
Balloon amount: $20,000
Interest rate: 6%
Monthly repayments: $728
Important: The example provided is hypothetical and for illustration purposes only. Actual rates and repayments may vary.
What Happens at the End of a Chattel Mortgage?
At the conclusion of a Chattel Mortgage term, you or your business will need to address the balloon amount, if applicable. Here are your options:
- Trade the vehicle in and purchase another with a new finance agreement, repaying the balloon amount during this process, often using the proceeds from the trade-in.
- Repay the balloon amount with available funds and either retain or sell the vehicle independently.
- Refinance the balloon amount into a new loan and keep the vehicle under your ownership.
In summary, Chattel Mortgages are a valuable financing option for businesses, especially those in need of vehicle or equipment financing. AutoNowCredit customers can take advantage of the numerous benefits associated with Chattel Mortgages, including flexible repayment options and tax advantages. Whether you're a sole trader or a well-established business, a Chattel Mortgage can provide the financial support you need while ensuring you maintain ownership of your assets.
FAQ
Where can I obtain a chattel mortgage?
Chattel mortgages can be acquired through most major banks and certain specialized smaller lenders.
You can also secure a chattel mortgage with the assistance of a vehicle finance broker. A broker can aid you in comparing the most favorable chattel mortgage options and guide you through the application process. Finance brokers typically serve clients throughout Australia, including major cities like Sydney, Perth, Adelaide, Brisbane, Newcastle, Melbourne, Canberra, and other locations across the country.
Is it possible to obtain a chattel mortgage if my credit is less than perfect?
Yes, you can qualify for a chattel mortgage provided you can demonstrate your capacity to repay the loan amount. Since a chattel mortgage uses the financed vehicle as collateral, lenders are generally more inclined to grant approval to individuals with poor credit as opposed to unsecured business loans. If your credit history presents challenges, you might consider approaching a specialized bad credit business lender.
What are the drawbacks of a chattel mortgage?
There are three primary disadvantages associated with a Chattel Mortgage:
- Repayments on the loan amount, including the balloon payment, are not tax-deductible (only interest costs are).
- It may turn out to be more expensive compared to making a cash purchase for an asset, though it can be more cost-effective than other financing options.
- Specialized accounting expertise is often required for small businesses to claim GST credits and other tax benefits.
What are the typical terms for a chattel mortgage?
Loan terms for chattel mortgages tend to be flexible to accommodate the borrower’s needs, but most lenders offer agreements ranging from two to five years.
Is it possible to pay off a chattel mortgage ahead of schedule? Generally, you can settle a chattel mortgage ahead of schedule if it aligns with your business requirements. Keep in mind that some lenders may impose early repayment fees.
What can I finance with a chattel mortgage?
Chattel mortgages are commonly utilized to finance business vehicles, equipment, and other assets. These assets can be either new or used, provided they meet the lender’s overall eligibility criteria.
Is it possible to pay off a chattel mortgage ahead of schedule?
Generally, you can settle a chattel mortgage ahead of schedule if it aligns with your business requirements. Keep in mind that some lenders may impose early repayment fees.
